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Ottawa and Ontario square off (sort of) over deficits: Walkom

On the surface, it seems that Canada’s two largest governments are at an impasse over economic policy. But appearances can be misleading.

Federal finance minister Jim Flaherty and Ontario Premier Kathleen Wynne are headed down very different paths when it comes to dealing with their government deficitis. (Colin McConnell / Toronto Star file photo)

In Ottawa, Prime Minister Stephen Harper’s federal Conservatives say elimination of the federal deficit is their top priority.

At Queen’s Park, Ontario Premier Kathleen Wynne begs to differ.

Deficit reduction may be important, she says but she won’t slash “necessary” services just to cover her government’s fiscal shortfall.

On the surface, it seems that Canada’s two largest governments are at an impasse over economic policy, one not seen since 1991 when Bob Rae’s Ontario New Democratic Party government famously announced it was breaking ranks with Ottawa in order to fight the recession rather than the deficit.

“Our priority is clear,” Ontario’s current finance minister, Charles Sousa, told the provincial legislature last week as he introduced his fall economic update. “This government will continue to protect investments in jobs and families ahead of short term (deficit reduction) targets.”

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Five days later, federal finance minister Jim Flaherty gave his response. “Balanced budgets signal stability,” he told an Edmonton business audience as he released his own update. “We are on track to meet our balanced budget commitment.”

At one level, the differences between the two governments are strictly political. Wynne hasn’t abandoned attempts by former premier Dalton McGuinty to balance Ontario’s books by 2018. Far from it.

The Ontario Liberals say they will continue to keep program spending growth at less than one per cent a year. They say they are still committed to restraining public sector wages and making government more efficient.

They’ve announced no new concrete public works, preferring instead to talk vaguely of green bonds and corporate incentives.

Rather, Wynne’s pivot to the left appears to be an attempt to make her party seem more reasonable than the hard-right Conservatives of opposition leader Tim Hudak.

At the same time, she hopes to bolster her credentials with left-liberal voters who might be contemplating the NDP.

Similarly, Flaherty’s laserlike focus on deficit reduction is crucial to the electoral fortunes of the federal Conservatives.

Harper has promised voters a raft of tax breaks once the deficit is slain. This means that, politically, Ottawa’s budget must be in balance before October 2015, when the next federal election is slated.

Still, there are real differences. True, the Ontario Liberals have shown themselves willing to curb spending — particularly on health care. But compared to the Harper Tories, they are pikers.

Exactly where the Conservative spending cuts are biting is not always clear. Even the watchdog Parliamentary Budget Office says it doesn’t know.

However, we do know from Flaherty’s update that for the last three years the federal government has been spending billions of dollars less than Parliament told it to spend.

Last year, this so-called spending lapse was $8.9 billion, representing about 9 per cent of discretionary funds approved by Parliament.

The government says these savings are coming from efficiency. Former parliamentary budget officer Kevin Page is less sanguine. As he told Canadian Press, history suggests that cuts in areas such as maintenance and infrastructure renewal will ultimately cost the treasury more.

Flaherty’s update shows that the government is also reaping savings by spending less on employment insurance benefits than it reaps in premiums levied on workers and employers. This tax on the jobless earns Ottawa between $4 and $5 billion a year.

But in the end, spending restraint won’t be enough. Both the Harper Conservatives and the Wynne Liberals are betting that extra tax revenues generated by an expanding world economy will save their bacon.

In their respective updates, Sousa and Flaherty acknowledge that the global economy continues to be weak right now. But both insist that it will pick up markedly next year, pulling Canada and Ontario along with it.

The experience of the last five years suggests another area of similarity: Both may be unduly optimistic.

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